Speculation about the Microsoft- Nokia deal has been in the air for a while, and it was more a question of when and at what valuation.
The deal is cheaper than what Google paid for Motorola, which underscores the huge erosion in shareholder value since the announcement of the exclusive Microsoft partnership in February 2011, when Nokia had put all its eggs in one basket.
Unlike Samsung’s strategy of supporting multiple platforms, including Windows Phone, alongside Android, which has catapulted it to a dominant position.
Taking on competitors
This deal seems to be the logical next step for Nokia. However, it is not clear how Microsoft will gain as Nokia had already become a captive manufacturer for Windows Phone, unless it was felt that Nokia’s survival itself was in question. No doubt the partnership gives the two players a better chance at competing with Google and Apple, with the latter using control over both software and hardware to create a formidable ecosystem.
The market does not want a duopoly (Apple and Android) and the Microsoft-Nokia combine, if successful, can provide that third option. But to survive, Microsoft will have to capture at least 10 per cent market share quickly.
From the India perspective, my concern is that as Microsoft’s focus will be on smartphones, it may not actively push product development or investment in the entry level phone and feature phone categories, now the mainstay of Nokia’s volumes in India.
There is also some speculation that the feature phone business will be sold. If that happens Nokia may lose out on the opportunity to upgrade consumers from feature phones to smartphones.
When India was relatively a smaller market, the country team had more freedom to push the local innovation agenda. So, we were able to proactively cater to local requirements and market dynamics through innovations like the hugely successful 'Made for India' Nokia 1100 and unique FMCG-style distribution strategy.
As Nokia India’s importance grew, the innovation engine got stifled by layers of bureaucracy, and the local leadership was slow, especially in recent years, to respond to market requirements.
domestic rivals
The complacency towards emerging local competitors also left the door wide open for home-grown brands such as Micromax and Karbonn to build their business on the dual-SIM opportunity, which was ignored by Nokia until 2011.
However, the good thing is that Nokia still enjoys strong brand recognition, is known for hardware design and quality, and has a strong manufacturing, supply chain and distribution network, which can turn around the company’s fortunes under this new partnership with Microsoft.
(The author was Managing Director of Nokia India between 2000 and 2006. He is currently Founder/ Director at GreenBean Ventures.)